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Tuesday, September 7, 2021

Green Sheet interviews Roman Tazetdinov, Worldline Global

Roman Tazetdinov, head of geo expansion, digital commerce at Worldline Global, shared insights with The Green Sheet about Russia's economy and its ecommerce opportunities for U.S. acquirers. Following are highlights from the interview.

What contributing factors are driving growth in Russian ecommerce?

The Russian economy has experienced some volatility in the past, but the country's economic expansion has led local consumers to demand high quality goods. Many of these goods are imported which has driven the uptake of Russian ecommerce amongst consumers, with major global digital businesses such as Google, Apple and Spotify dominating the market.

The Russian ecommerce market has been expanding since 2013, growing an average of 17 percent per year, compared to 7 percent across Europe. The pandemic and imposed lockdowns last year meant this trend accelerated, jumping by an exceptional 51 percent and overall, 2021 has continued to show that the ecommerce boom continues unabated.

Russian ecommerce giants are benefitting from this change in consumer purchasing habits, and one success story has been online retailer Wildberries, which performed well last year. There are strong opportunities for foreign companies to capture yet more market share as it is predicted that by 2024, online retail in the region is expected to grow a further 19 percent.

You mentioned 3DS is implemented differently in Russia than in the Western world. What technical requirements must U.S. acquirers meet to sell goods and services online to Russian consumers?

U.S. acquirers must hold a local license to operate in the Russian market. Any operator that attempts to penetrate the Russian market – and sell goods and services online to local consumers without a local solution – will inevitably see its performance decline. Worldline offers a local solution and can provide high performance.

Regarding 3Ds, these standards do not always meet Strong Customer Authentication requirements. This is because implementation at the issuer side can be different. However, it does not depend on the acquirer implementation. Therefore, there are no specific requirements applicable for overseas acquirers to comply with any specific Russian 3Ds implementation although it meets Strong Customer Authentication security levels in all cases.

You noted that developing markets such as Russia and China are rapidly scaling because they are less burdened by legacy infrastructure. What steps are Russia's more traditional financial institutions taking to catch up with eWallets and digital commerce technology?

Traditional Russian financial institutions are no longer so 'traditional.' They have adapted quickly to the competition posed by e-wallets and other fintechs. Some of these established institutions are building the whole ecosystem of applied services to provide full scope coverage for consumer demands, with some moving into the marketplace arena.

In other words, traditional banks have noticed and are adapting to meet the challenges created by eWallets. And it seems to be working; we are seeing eWallets deceasing in popularity with Russian customers who now favor the traditional financial institutions.

In the Russian market, traditional banks are one step ahead and represent a real fintech environment. One example is goods.ru marketplace, part of the ecosystem of SberBank—one of the largest banks in Russia—which has been renamed SberMegaMarket recently. In order to achieve its Russian strategic objectives, Worldline took the decision to work closely with traditional banking and financial institutions, because e-wallets are losing ground in the region.

The Russian digital commerce market is different compared to other markets, particularly other European markets. For example, the Russian market is not fragmented, which is obvious when assessing the banking environment. Also, the Russian financial ecosystem is supported by the government, which makes it less complicated to operate within. Finally, Russia began the implementation process of payments later compared with Western countries and so there are no legacy issues to contend with.

You cited additional considerations for conducting cross-border commerce with Russia, such as a special tax assessed on digital goods, legislation challenges and fluctuating currency. Please elaborate.

Any foreign online business looking to enter the Russian market must understand that there are cultural and legal complexities which must be factored into any strategic planning. The Russian government and Central Bank are highly protective of the autonomy of the financial markets and how Russians engage with businesses. These factors will have cost implications for any business interested in launching a proposition in the Russian market.

One of those costs could be triggered by the issue that surrounds a company being established as a legal entity in Russia. If the company has not registered as a legal entity, its payments will typically be processed as cross-border transactions by acquiring banks outside of Russia. Processing transactions locally is important and something companies should understand helps increase authorization rates to 93 to 97 percent—it will also reduce average credit card processing fees, cutting expensive cross-border card scheme fees by ~1 percent +10 cents.

Local rules differ from other territories. For example, and in relation data, Russian legislation requires personal consumer data to be stored on Russian servers. However, customer payment card data, which is not directly used for identifying the person, does not have to be retained within local servers under Russian law. All data collection must be legally compliant irrespective of whether a transaction is processed domestically or internationally.

There is a strong misconception that sanctions against Russian companies and banks imposed by the US and the EU act as a major deterrent for companies to start up and invest in the country. However, because financial services are exempt from sectoral sanctions, these will not directly impact digital or payments businesses. If this was the case, then the market would not be so buoyant and many international companies would have left if sanctions were hampering their growth potential.

You observed that average incomes are increasing in Russia and Russian consumers like to shop for high-end, quality goods in the United States. How can U.S. merchants provide Russian consumers with a seamless, frictionless ecommerce experience?

Worldline can help these companies adopt a best-of-both-worlds approach whereby cross-border and domestic payments are offered to global merchants.

Our solutions can work with Russia's own, native payment options such as the Mir card. We are also compatible with local e-wallet payments.

We can also process around 80 percent of the acquiring bank market due the vast network of partnerships with leading Russian acquiring banks where we send transactions back to the card issuing bank. This allows our clients excellent authorization rates within the local market. These relationships mean Worldline has its own local bank account and can accept payments in rubles, reducing any potential risks and foreign exchange fees.

Overseas merchants can receive fully compliant funds from Worldline wherever the merchant is domiciled. We work with a local integrator gateway which allows all transactional traffic to be quick and complaint and allows merchants to handle Russian VAT.

How is Worldline working with Russian experts and local regulatory authorities to help acquirers navigate the Russian ecommerce market and its unique requirements?

Worldline's long-standing association and strong reputation within the Russian financial system and its banks has meant we have gained a deep understanding of the Russian banking ecosystem. In 2018 we launched the Russian Payments Solution as part of our strategic approach to help businesses target high growth markets including Brazil, Russia, India and China.

Year on year we have outperformed all our targets especially on payment volumes and customer adoption. International businesses are benefitting from what is now one of our fastest growing payments offerings. We cater for ecommerce clients selling online to Russian consumers in digital goods, retail, travel and many other sectors.

Finding opportunities and launching a new proposition in Russia is not hard and much simpler than certain businesses imagine. If there are obstacles, it is worth taking on the challenge because the country is on an upswing and consumer spending is rising and expanding at an enormous rate. end of article

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